IMG interview

The interview below, copied from IMG board, gives some clues why West African gold companies are being shunned in the market. Looks like West Africa may be generally labelled as high cost as well as high political risk, which as we know is a gross over-simplification.

To me this creates buying opportunities, especially for growing producers like EDV and TGZ. It also means companies like these are less likely to be takeover targets, even at low prices. Even if a potential buyer is tempted by EDV or TGZ, it would be worried about its shareholders reacting negatively to an acquisition in West Africa. Which is fine with me; the last thing I want is for EDV or TGZ to get taken over before they have time to realize their growth plans.

MELBOURNE, Feb 7 (Reuters) - Canadian gold miner Iamgold is committed to Mali despite the conflict in the African nation and poor production performance of its mining joint ventures there, its chief executive said.

While Mali, where French forces have been bombing sites controlled by Islamist insurgents, may appear unattractive to investors, it is one location in Africa where the company is eager to stay as the mines should be highly profitable, CEO Steve Letwin told Reuters in an interview on Thursday."I just think as an investment it is a good investment if we can all collectively get our heads around it and the Malians can get some semblance of stability," Letwin said.The situation in northern Mali has not disrupted operations at Iamgold's joint ventures -- the Sadiola and Yatela mines in the south.

But its partner in the ventures, AngloGold Ashanti, is considering getting out as part of a broader revamp of its operations. Letwin said Iamgold is not big enough to take on AngloGold's share."We have people who are interested, but they need to talk to Anglo, and I'm sure they have," he said, declining to name who was interested. "I want to make it work, because it makes sense. I want to work with the Malians and whomever partner we have."

More broadly, the company wants to shift its asset base to locations with cheap power costs and reliable infrastructure, like Canada, aiming to produce 36 percent of its gold in North America by 2017, up from 3 percent in 2010.

Iamgold has been punished by investors who have chopped the company's market value nearly in half over the past three months to $3.2 billion after it cut its 2013 gold output forecast and warned that cash costs were going to jump by about a third.It warned in January that cash costs would rise to between $850 and $925 an ounce this year, against gold prices currently around $1,673."These costs are our clear and present danger across the board," Letwin said.

'DOUBLE WHAMMY'

Lower power costs are crucial as miners need more electricity for drilling and processing ore when the rock is harder and there is less gold per tonne of rock. In Suriname, where the company's Rosebel mine is the biggest single power consumer, electricity costs have doubled over the past four years, while the company has faced harder rock. "It's a double whammy for us," Letwin said. If Suriname does not cut power costs, Iamgold will not be able to expand Rosebel, he said, adding that the company is holding talks with the government on the issue.

Letwin played down analysts' concerns that the harder rock Iamgold is running into at Rosebel and its Essakane mine in Burkina Faso would raise its cash costs even more. "This year I'd say our guidance is very safe," he said, adding that his task is to bring those costs down over time. The Toronto-based company produced 830,000 ounces of gold in 2012, just below its own guidance range, which it said was due to a 14 percent year-on-year drop at the Sadiola and Yatela mines operated by AngloGold. It is forecasting up to a 15 percent increase in total production for this year.

It is targeting an 80 percent increase to 1.4-1.6 million ounces by 2017, driven by the ramp-up of its Westwood project in Quebec and the start-up of its Cote Gold project in Ontario. Iamgold hopes to start building the Cote Gold mine in 2016 after completing feasibility studies, as long as gold prices don't drop below $1,000 an ounce, Letwin said.

Some analysts have raised concerns that the project may turn out to be too expensive. "As a low grade, big capex, high tonnage project, the risk of capex escalation is a concern," Societe Generale said in a research note last week. But Letwin said the big factors in favour of Cote Gold are power at 6 cents per kilowatt hour, compared with 30 cents at the Essakane mine, roads and rail nearby, a 9 million ounce deposit and available labour. "When you move to lower grade, infrastructure trumps everything," Letwin said.